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Chapter 3: Q. b - For Critical Thinking (page 52)

How could laws that ban tips cause a reduction in the quality of the delivery of services?

Short Answer

Expert verified

Tips act as incentive for better delivery, hence the quality of delivery may fall.

Step by step solution

01

Step1. Given information

A law on the ban of tips shall reduce the quality of delivery.

02

Step2. Explanation

Tips act as an over and above payment made for a good quality delivery. Thus, it acts as an incentive for the delivery person to improve the quality of delivery. If a law is introduced to ban the tips, the incentive to deliver well shall vanish and hence, the quality of service may deteriorate.

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Consider the market for smartphones. Explain whether the following events would cause an increase or a decrease in supply or an increase or a decrease in the quantity supplied. Illustrate each, and show what would happen to the equilibrium quantity and the market price.

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